Sophisticated Investor

Week Ending September 24th, 2021Major stock indices recovered modestly last week. Fed meeting was the most closely watched event last week although majority of the participants looked concerned over the potential default of Evergrande also. After the meeting last week, Fed sent a strong signal to start the taper "soon" and raised the core inflation expectations for 2021 to 3.7% from 3%.I think the Fed's statement and Powell's comments during the press conference were moderately hawkish. Powell also suggested that the taper may end around middle of 2022. I think rate hikes are going to be more closer to the end of taper than previously anticipated. I expect that taper will be starting as early as November as Powell suggested that he would be looking for continued improvement in labor market and he did not need to see a knockout report for September.Although stocks rebounded last week but I expect volatility to remain elevated in the near term. The uncertainty over Evergrande's potential default remains and Evergrande's silence on dollar bond interest payment is in stark contrast with its treatment of domestic investors so far. Evergrande story tell us about the tight grip Chinese government has over the financial system in China more than anything else and I think there are lot many companies like Evergrande in China and Chinese banks are also a big mystery.

Week Ending September 17th, 2021Major stock indices ended the week modestly lower even after the CPI report showed that inflation moderated in August. Headline and core CPI remains at 5.3% and 4 % respectively on annual basis. Although some of the key contributors to recent inflation pressure, such as used car prices and away from home food services moderated in August but it doesn't mean that inflation is on a downward trend in the near term. I still believe that inflation will settle in at a much higher level than the levels experienced over last cycle.I think Fed is going to start the taper before the end of this year and November is still on the table. And as I have been writing for last couple of months that investors should be ready for frequent pullbacks going forward. The direction of the market will depend more on the flavor of economic data releases although it is well understood that Fed is going to stay accommodative for many more months. I think investors are more concerned about earnings growth amid expectation of slow economic growth in the medium term rather than taper.Let's see what we hear from Federal Reserve this Wednesday.

Week Ending September 10th, 2021Stock indices pulled back this week on slowing recovery worries. The market participants turned slightly bearish due to weak August payrolls, new signs of rising inflation, very tight labor market and the expectations that Fed is going to start tapering in late November.I think this small pullback so far only reflects the changing mindset of the market participants and it only represents that participants are reassessing the risks to their future expectations. Buy the Dip camp is also on the 'wait and watch' mode it seems, probably the dip buyers are hoping for a little more downside before they jump back into the market.Growth scares and small pullbacks are part of the midcycle phase and it is generally believed that midcycle pullbacks are short lived. I don't think majority of the market participants at the moment seem so worried about the start of taper amid expectations of slowing recovery and signs of inflation becoming more stickier than being expected.Yes investment portfolios need to have some kind of protection going forward and I don't think Bond funds can act as best portfolio stabilizers.

Week Ending September 3rd, 2021After Jackson Hole, everyone was looking for August jobs report. Non-Farm payrolls grew only by 235,000 in August versus consensus expectations for gain of 700K . The unemployment rate fell to 5.2% while the participation rate remained unchanged at 61.7%. Average hourly earnings rose by 0.6% on monthly basis which confirms the narrative of persistent inflation camp.The smallest gain in Non-Farm payrolls since January has muddled the picture more. I think this report has shifted the taper timeline to December which is kind of good news for stocks it seems but on the other hand report has added to worries about slow recovery ahead with rising inflation.I think Federal Reserve is most likely to wait for next couple of jobs reports before it decides to start tapering. Tapering is kind of tightening but it's not going to have major effect on asset prices because Fed has already communicated that rate hikes won't follow tapering immediately. But I think slowing growth and inflation worries are going to cause volatility in the markets in the short term although Fed is going to remain ultra-accommodative for a while.Given the amount of excessive liquidity in the system, majority of market participants may go on to shrug off all bad news for a little while but I think it is wise to prepare and be ready for the volatility and a possible major pullback ahead.

Week Ending August 29th, 2021Investors bought the stocks last week as it appeared to most of the participants that mild weakness in the stocks was a good opportunity. Markets looked nervous and traded in a narrow range after last Monday's rally as all were waiting for Powell's remarks. And on FridayPowell gave a calibrated dovish speech which I think is again looking positive for the stocks in the medium term.It appears that Fed has decided to take chances on inflation as rising inflation still looks transitory to them. In these circumstances I think there is no alternative left except to buy the stocks for the investors. Moreover as Powell suggested on last Friday that rate hikes will not follow the tapering immediately so I think rates are not going to rise at least till last quarter of next year.It may appear to many that we have wide open road ahead and it's time to push hard on gas pedal now, but I advise investors to be more cautious now as inflation worries are still here and policy mistake seems unavoidable to me.

Week Ending August 20th, 2021We saw the mild weakness in the markets last week due to the growing consensus that Fed is more likely to start tapering this year and the growing disruptions and lockdowns due to Delta Variant.All investors are going to look for new clues from the Jerome Powell's speech at the virtual Jackson Hole meeting. I don't think he is going to reveal the taper timeline next week. I think he will double down on the effect of the delta variant on the economy and may point towards the some delay of taper plans.Federal Reserve may take chance on Inflation for next couple of months in view of the rising covid cases but "no action" by the fed may also cause turmoil in the markets. The bears who are hoping for some correction may need to wait a little longer as some kind of bigger shock in the form of policy mistake is required. Moreover the huge amount of liquidity in the system acts as some kind of shock absorber when markets pull back even a little. But I advise investors not to rely on the 'buy the dip' camp to save every time market pulls back.

Week Ending August 13th, 2021Stocks shrugged off the fears related to the spread of delta variant last week, it seemed. SP500 AND Dow posted positive week while Nasdaq was almost unchanged for the week.Bureau of Labor Statistics reported last week that headline CPI rose only by 0.5% in July, a deceleration from June's 0.9% rise while core number rose only by 0.3%. Many of the market participants took this lowest month over month uptick since March as a kind of confirmation of Fed's view of inflation. Transitory camp people may take comfort from the retreat of transitory items such as used car prices and air fares. But I think investors need to understand that anything above 4% on annual and sustained basis is something we all need to worry about.Moreover Producer Price Index rose by 1% in July and 7.8% on yearly basis as reported last week. I think inflation is here and it is going to be more stickier than expected. And there are fresh signs of supply chain disruptions in view of spread of delta variant.I advise investors to go into somewhat defensive mode and buy some kind of hedge to overcome any unprecedented outcome. I am not saying a big correction is on the way but the forward path seems more bumpier now.

Week Ending August 6th, 2021Much awaited July's jobs report released on Friday, added more to the Federal Reserve's worries. It was reported on last Friday that total non farm payrolls rose by 943,000 in July and the unemployment rate declined by 0.5% to 5.4%. The labor force participation rate remained little changed at 61.7% . Average hourly earnings rose by 0.4% on monthly basis and the yearly gain stands at 4% now.It is definitely a good report and confidence booster for investors and federal reserve. But the data for this report was collected in the first half of the last month and before CDC issued new recommendations. I don't think this surprisingly good report can sway the mind of federal reserve as a group. Fed will more likely wait for 1-2 more jobs reports along with other data sets, before it decides to start tapering. Moreover delta variant is causing another round of disruptions and I think this will slow down the economic recovery definitely at least for 1-3 months but I think the impact will be much less as compared to the first wave.Markets are expected to trade in narrow range going forward and we will be witnessing pullbacks quite often.

Week Ending July 30th, 2021It was a mixed week for major stock indices. Stocks pulled back on Friday due to worries about slowing growth and spread of delta variant. Commerce department reported its advance estimate that GDP increased by 6.5% in second quarter, well shy of consensus estimate of 8.5% approximately.I think markets will trade in narrow range going forward and investors should cut exposure to risky assets a little here and I also recommend using some kind of real hedge. As I am in the “persistent inflation“ camp , I have been hoping for some kind of hint on taper timeline from Fed's July meeting. But again J Powell stuck to his longstanding view that recent rise in inflation is transitory. Powell also suggested in the press conference that Officials “deepened their deliberations over how and when to start tapering“ and “there is range of views on timing“.I think there is no consensus in any shape or form among members. I think we have to wait till October this year at least to learn about the taper timeline. And if the inflation continues to surprise on the upside, policy mistake will become more unavoidable.Fed launched domestic “Standing Repo Facility“ to control level of federal funds rate. This facility will conduct daily overnight repo operations against Treasury securities, agency debt securities and agency mortgage backed securities with maximum operation size of $500 Billion. Fed also launched repo facility for foreign and international monetary authorities. Federal Reserve will enter into overnight repurchase agreements withForeign intuitions against their treasury securities maintained in custody of Federal Reserve Bank of New York. Minimum bid rate for both facilities is set at 25 basis points. The SRF is designed to dampen upward pressure in repo markets that may spill over to fed funds market. I think this facility will also help when Federal Reserve decides to unwind the bonds purchases. In 2014, when Fed stopped its asset purchases, the excessive reserves in the banking system began to shrink and banks were not willing to lend in the repo market. Banks will be able to hold more reserves when Fed decides to taper this time due to the standing repo facility. Moreover banks do not need to guess ample reserves required as banks will have access to SRF all the time.

Week Ending July 23rd, 2021On last Monday, Dow tumbled more than 700 points intraday. It was a risk off session and it felt like the sell off would continue for couple of days, but all the fears were gone by Tuesday. All news headlines were blaming rising delta variant cases mostly. But I think the market participants have been looking more worried about the inflation, forward path of the monetary policy and peak concerns.Although the major stock indices have recovered the from the last Monday's drop and it was a net positive week. The fundamental problems remain the same and I attribute this quick comeback to liquidity provided by the monetary and fiscal policy over the last 12-15 months. This “buy every dip” mentality will remain in place until we see significant shift in the policy.Federal Reserve's meeting will take the center stage this week and it is being expected that Fed will provide some kind of hint towards the taper timeline. I think its high time for Fed to pause its monthly purchases by last quarter and start tapering early next year.

Week Ending July 16th, 2021Major stock indices ended the week lower as the June's CPI report released last week showed that the core CPI jumped 0.9% in June. Core CPI increased by 4.5% on yearly basis, the highest level since 1991. I think June's report renewed the inflation worries and participants have less reasons to believe in the FED's narrative on inflation.Although there are temporary supply factors responsible for some of the upside surprises in inflation data, and many economists are suggesting not to read too much into the monthly numbers, but the markets look concerned that the rise in inflation may last longer than being expected.If rising wages start to show up more broadly in the inflation numbers ahead, the Fed will have no excuse not to slam on brakes resulting into a policy mistake. If the "temporary bottlenecks" stay for longer I think the workers will bargain more for higher wages to cover their rising cost of living, and rising wages and prices will keep on feeding on one another.The US housing market will take the center stage this week with the release of data on housing starts, building permits and existing home sales.

Week Ending July 9th, 2021Congratulations to Richard Branson and Virgin Galactic. It will be interesting to see in near future, how space tourism industry develops.Last week was kind of net positive week for major stock indices even after some minor pullbacks. The downward move in the US 10 year treasury yield caught the attention last week as the yield touched almost 1.25% on last Thursday before advancing to 1.35 % on Friday. It appears that rising inflation concerns as expected by me and many others are not reflected by the treasury yields. Many of the market watchers are blaming the move in the yield on weak economic growth expectations ahead as reflected by some economic data including purchasing managers survey for the service sector, which fell to 60.1 in June from 64 in May.The Fed minutes of June meeting released Wednesday showed that Fed officials expected to cut back on bond purchases earlier than expected as growth has been very strong so far. Well there was nothing unusual or unanticipated in the fed minutes in my view, the minutes confirmed the robust discussions on forward path of the policy.Let's see how this coming week unfolds as many major banks are going to report earnings along with CPI report on Tuesday and retail sales report on Friday.

Week Ending July 2nd, 2021The stocks indices moved to new highs last week. June's payroll report released last week showed that US economy added 850,000 jobs while unemployment rate edged higher to 5.9% from 5.8%. Average hourly earnings rose by 0.3% on monthly basis, which is a bit surprising for me.The unemployment rate rose slightly as modest number of Americans entered Jobs market who were not looking for jobs previously. I think this new Jobs report is unlikely to sway Federal Reserve one way or another.The market interpreted the jobs report as just right because it is not strong enough to compel Fed to accelerate efforts towards taper timeline. More people will enter jobs market as unemployment benefits go away by September .

Week Ending June 25th, 2021I think it is evident from the market action this week that the Fed's minor change in policy stance last week was on the dovish side of the hawkish spectrum. It appears as if majority of the market participants agree that inflation is transitory this time. Though it is strange that nobody seems to understand the undefined word "transitory" in financial terms. Moreover many believe that the economy projected to grow at 7% in 2021, can withstand 3% core inflation.I think we have passed the early cycle of the recovery and entering the midcycle phase which is typically the longest phase of the business cycle. I do think the markets will keep on experiencing periodic pullbacks as most of the good news has already been digested and inflation remains the major threat to the future expansion.Let's suppose Fed proves to be right about inflation and the inflation remains contained within the undefined parameters of the word 'transitory". We still have a lot of things to consider in terms of what may go wrong in the next 1-2 years. Fed is projecting only 2 rate-hikes in 2023 and I think these next 2 years will consume major chunk of the mid-cycle phase. What tools will we have at that future moment in case mid cycle expires early. This mid-cycle phase is not similar to historical mid-cycles as we are recovering from unprecedented shock never seen in last 100 years. I think we will come back to zero interest rates if not negative rates and fiscal stimulus plans again with some elevated levels of inflation if Fed remains complacent and stick to "maximum" employment target and newly "refined" inflation target.Over all things look great in general as corporate credit spreads have declined to historic lows, no stress in the banking system, Fed remains ultra-dovish, more fiscal packages in terms of infrastructure plans, supply chain pressures have eased a little for now etc. etc. So I think one should remain invested in the market, although pullbacks are unavoidable and should not be the reason to stay on sidelines. But one should be vigilant all the time about future subtle changes in fed's stance and inflation.The 10 year US treasury yield jumped back above 1.5% on Friday following the report that core PCE had risen 0.5% in May bringing the year on year increase to 3.4%.

Week Ending June 18th, 2021Fed's meeting was main attraction last week. Most of the market participants were hoping for some sort of change in Fed' s dot plot heading into the meeting in view of the new inflation signs. And Fed did make a change to dot plot by projecting 2 rate hikes in 2023.The 10 year US Treasury yield touched almost 1.60% before the Fed's release of statement. And then it started falling and eventually settled below 1.45% on Friday. The 2 and 3 year treasury yields rose a little while 30 year Yield fell 20 basis points approximately after Wednesday.Much awaited FOMC meeting has added more to the growing expectations among market participants that Fed will fall behind the curve, in my view. Most of the news headlines are calling it some kind of hawkish statement by the Fed, but I think it is still on the dovish side of hawkish spectrum. As there is no mention of any taper or “pause” in bond buying and no mention of any taper timeline projections etc., although Fed has raised the inflation and GDP projections leaving Unemployment expectations unchanged. Moreover the projected rate hikes are almost 2 years away.But at-least Fed has pulled forward the projected rate hikes. In my view there is greater probability in the near future that these rate hikes will be further pulled forward. I think Fed's maximum employment mandate should be re visited by Fed as benefits, stimulus checks and changing family dynamics due to the pandemic will keep many out of the labor force by choice.I hope for more hawkish statements from Fed going forward as taper timeline has to be discovered soon in view of the evolving situation in terms of new projections and new data-points. I also think sometimes that may be we are watching a great experiment by Fed in an effort to return to old normal by intentionally falling behind the curve.In the end I must say, we all must understand that we are dealing with very complex subject and it is very risky business to forecast inflation, unemployment, interest rates and other factor .

Week ending June 11th, 2021As being anticipated inflation has been on the rise with new data points pointing towards the rise. But the question is not about the direction of the inflation. We all are trying to forecast the persistence and magnitude of the future inflation.We are watching the economic expansion in combination with ultra accommodative monetary policy and the fiscal push. So the historic parallels are difficult to find and one should not base his/her thesis based on any closely resembling scenarios of the past. Even if somebody argues about any similar historic scenario, world has changed a lot due to technology over the years.The most important factors are tight labor market, wage growth followed by materials costs which will determine the duration/persistence and magnitude of the future inflation. Recently wages have been rising along with materials costs, and are expected to rise further. Some argue that wages will stop rising more in the 4th quarter when benefits go away and increased labor supply will dampen the further rise in wages. But I think wages are bound to rise until commodity prices cool down.I think once we hit a new high say 3%, forward path of inflation will be much steeper than being anticipated if unattended by Monetary policy makers proactively.Sometimes I think, Fed is intentionally letting all this to happen and hoping for some old normal to return, as the world has already been living at zero bound. I think we need to wait till 4th quarter before we move up the certainty level and meanwhile one should think of the future inflation as somewhat in between most understood meanings of transitory and persistent inflation.

Week Ending June 4th, 2021Jobs report was the main attraction last week. The employment situation report for the month of May showed that the job situation is improving at slower pace than being anticipated. US economy added only 559,000 jobs in May lower than the consensus expectations of 670,000. I think this new jobs numbers point to the fact that April's Jobs reports was not a fluke. And the economic recovery is not as smooth as being anticipated by many. Wages rose 0.5% in May, the third strongest month over month gain over the last year. Rising wages are good for households but on the other hand rising hourly earnings adds to inflation worries. Moreover wages growth is pointing towards kind of persistent inflation if the growth trend continues.Markets shrugged off Federal Reserve's announcement last week that it would start selling corporate bonds and ETFs it bought to contain pandemic's economic fallout. These bonds and ETFs are distinct from Fed's balance sheet debt and amounts to $13.7 Billion approximately. I think it is kind of a micro step towards tapering.However the jobs report was kind of good news for markets as it provides more time to Fed to ponder over change in policy stance.

Week Ending May 28th, 2021Major stock indices continued to rise higher last week shrugging off all the inflation fears. It appears as if market participants are looking past the inflationary months ahead and the most somehow appear to fully agree with the Fed's view on inflation.Republicans unveiled a $928 billion infrastructure plan as a counteroffer to President Biden's proposal of $1.7 trillion. Biden proposed $6 Trillion budget for fiscal 2022 which will face the test in the congress.The commerce department reported on Friday that core PCE price index increased 3.1% in the year ended in April, a little higher than expected increase of 2.9%. Personal income decreased by 13.1% in April reflecting a decrease in social benefits according to estimates released by Bureau of Economic Analysis. A big jobs report looms in the week ahead. I advise investors to stay invested with focus on quality.Thank You To The Brave men and women who made the ultimate sacrifice.

Week Ending May 21st, 2021In another volatile week, SP500 was almost flat while Nasdaq Composite posted a slight gain. As I mentioned in earlier posts, I think inflation is going to be in between the most understood meanings of Transitory and Persistent inflation. As the monetary policy and Fed’s role has changed to a great deal since the last significant inflationary period in United States. The fed’s role has evolved since Dr. Greenspan affirmed to support the economic and financial system in 1987. But what if the supply side factors go crazy enough to be contained easily and demand remains robust due to re-openings, big infrastructure plans and accommodative policy until we see average inflation of over 2%.Investors should be worried more about the sudden acceleration in consumer prices and fed falling behind. The minutes of the April meeting showed some eagerness among participants to start thinking about the plan in case inflation continues to rise. The investors must have felt a little relief last week after reading about the fed’s intention to even start thinking about the plan in upcoming meetings.But I think markets will continue to have periodic pullbacks going forward as I feel investors are looking for quick solution to the inflation worries but inflation equation is much more complex and needs quite some time.

Week Ending May 14th, 2021Stocks slipped back from record highs last week after investors saw real signs of inflation in the economic data. The Core CPI jumped by 0.9% in April, which rattled the stock market. It appeared like people had woken up to the term inflation last week. But stocks recovered from weekly lows after it was reported on Thursday that jobless claims dropped to 473,000 in the week ended on May 8th and April retail sales were almost flat as reported on Friday.One has reasons to believe that inflation is by product of expanding economy and it is a transitory phenomenon as Fed believes. But I think inflation this time would be more or less like in between the most understood meanings of Transitory and Persistent Inflation. I think we are in a tug of war between temporary and long term inflation. As both cost push inflation factors as well as demand pull inflation factors are at play. The tariffs, de-globalization, supply chain constraints and changed behavior of China are going to keep on affecting inflation expectations in future.I think it’s time to take investment decisions tactically based on structural changes happening on the supply side. And I advise investors to stay invested and keep some kind of protection in their portfolios in case our worst inflation fears materialize in reality.

Week Ending May 7th, 2021Dow Jones Industrial Average and SP500 recorded another good week while Nasdaq composite posted weekly loss last week. Janet Yellen and Larry Summers’ remarks fueled inflation worries although Treasury secretary clarified later that her remarks were not intended to be a prediction of persistent inflation. Friday’s jobs report showed that non farm payrolls expanded by only 266,000 in April, which is almost quarter of the widely expected jobs number.The disappointing jobs number was interpreted as “no inflation” and “no rate increase or tapering any soon”, which propelled the stocks to higher levels on Friday. I believe the unemployment rate will continue its downward trend as effects of stimulus checks and other benefits fade away and if we do not see any unexpected new coronavirus wave due to new deadly strains. The investors should not build their new thesis based on this latest jobs number only. Moreover one should always be on the lookout for subtle but structural changes due to supply chain constraints and the cost push inflation factors.

Week Ending April 30th, 2021What an eventful week it was. All the major stock indices touched all-time highs before surrendering their weekly gains on Friday. The major US tech companies produced massive quarterly results this week but the stock price action remained muted as investors are not that confident about the sustainability of this growth pattern in near future.Powell did not make any policy change this week after Fed's meeting but he noted the rising inflation and classified this rising inflation as transitory. I think Fed knows about the chances/probability of transitory inflation becoming persistent inflation but it does not want to create panic right now. Moreover Fed wants to see average inflation of 2% or more before doing something. I do not know if Fed wants to see average inflation staying above 2% on quarterly basis, or half yearly basis.On Thursday, commerce department announced that US GDP expanded at annualized rate of 6.4% in first quarter of 2021. On Friday, it was reported that PCE Price Index, the most important inflation gauge used by FED, rose 0.5% in March while core PCE price index rose by 0.4% on monthly basis. The core rate rose to an annual rate of 1.8% from 1.4% in February this year due to the base effect.As a student of markets, I feel most of the participants are feeling that in last recent expansion, inflation had almost barely touched 2% even after ultra-accommodative policies spanning over most of the expansion, so maybe this time is no different. But this time it's different as I think demand pull as well as cost push factors are both at play right now behind the scene to push inflation in a range above 2%.

Week Ending April 23rd, 2021Markets paused and took a breather this week before coming back on Friday. Biden's plan to raise capital gains tax for the wealthy did not create the panic as one would had hoped for. Major stock indices were only down by 1% roughly on Thursday after news about capital gains tax hike flashed. I think this little pause represents a healthy small pullback, as stocks don’t go up in a straight upward sloping line.I have been hoping for a deeper pullback, somewhat close to 10% as the current valuations represent much more than the discounted future good news. There is frothiness in all sectors, of course in unequal proportions in my view. I think 10-20% correction is needed to clear the frothiness. I think Markets are waiting for a catalyst to correct and then resume their upward journey.The scientists should come up with a better explanation about the cause of mutations in the coronavirus apart from text book explanations which refer to "mistakes which occur naturally when virus replicates". The double mutation strain has caused a lot of havoc in Asia and I expect pharmaceutical companies to come up with new booster shots every 3-4 months to tackle new strains. The world economy is still shackled by the coronavirus and I think the goal of complete eradication is shifting away with discoveries of new killer strains. The shifting of the goal post will keep on hampering the business confidence around the world. Being a student of Human Genetics in my undergraduate years, I think if we vaccinate almost entire population of the world with vaccines containing inactive coronavirus (Pfizer & Moderna) somehow, virus will have far less chance to replicate and make more deadly strains.Weekly jobless claims fell to a new low of 547,000 in the week ended on April 17th as per latest DOL's release this week while National Association of Realtors reported that existing home sales fell 3.7% in March from February amid limited supply of houses. The flash reading of US composite PMI rose to a record high of 62.2 in April from 59.7 in March as per IHS Markit's data release on Friday.It has to be seen what Fed says next week on Wednesday apart from presenting the obvious rosy economic picture ahead. It's clear enough that Fed won't be providing any clue about any future policy change next week.

Week Ending April 16th, 2021I wrote my weekly piece titled as "Good News is No News" at the start of April. I thought everything was priced into the market and I still think good news is no news for sophisticated investors. The good economic numbers released last week were all close to expectations and some exceeded expectations. But did not we know about this happening as it always happens in the start of any economic expansion. One should expect better economic numbers in the near future if coronavirus remains contained somehow. I am only trying to say that the present valuations are way ahead of the economic reality even if we discount the expected future growth.Last week stocks moved to new highs powered by 9.8% jump in retail sales in March, weekly jobless claims fell to a new low of 576,000, and the banks reported better numbers. The core CPI data released last week showed a modest increase of 0.3% in March. The major banks reported better than consensus results although loan growth dimmed.More good news on the economic front is expected in the remaining months of the year but one should not expect stocks to continue to move higher in direct proportion to the magnitude of future good news. Investors should think about protecting the gains while participating in the stocks rally.

Week Ending April 9th, 2021Contrary to my expectations, last week was good for the stocks. Major stock indices steadily moved higher after better than expected March’s jobs report . Nasdaq composite index outperformed SP500 last week which was quite interesting and unexpected move for me.On Friday, Bureau of Labor Statistics reported that Producer Price Index increased by 1% in March on seasonally adjusted basis, which is higher than expectations. The core prices for final demand rose 0.6% in March following an increase of 0.2% in February.The 10 year US Treasury yield continued its descent last week but increased to 1.66 % on Friday after release of Producer Price data.I continue to hold on to my thesis that it is not an open road ahead kind of scenario for the stocks although economic data is pointing towards much brighter days ahead for the economy. I think the better data will prompt the Fed to change tone of the communication before its being expected although Fed plans to let the economy run a little hot before it plans to change its stance. Moreover I think that the stock prices have run ahead of the earnings growth over the last one year. I advise investors to stay invested and buy some kind of protection for the unexpected.Major Banks will be releasing quarterly results this week. Moreover the Consumer price data, retail sales data will also be released this week for March 2021,which will provide more clarity on where things stand.

Week Ending April 2nd, 2021The major stocks benchmarks closed higher for the shortened week. The large cap SP500 Index crossed psychological 4000 threshold level. As reported on Thursday, seasonally adjusted initial jobless claims were 719,000 in the week ended on March 27, an increase of 61000 from the previous week's revised level which kind of helped stocks on Thursday.On Friday, the non-farm payroll report showed that 916,000 jobs were added in March, which was an upside surprise for me and many others. And the unemployment rate edged down to 6.0% in March. The Participation rate remained little changed at 61.5% in March which is 1.8 percentage points lower than February 2020 level. It has to be noted that data for March report was collected earlier in the month before most states broadened vaccine access.I have been trying to draw some lessons from the last summer's market action. The pandemic was in full swing and all the economic data releases were pointing towards very weak economic situation. The only good news which propelled the stocks in my view was the Fed's backstop. And everybody knows what happened later, stocks have reached all-time highs since then.Now we have good vaccines and treatment options available, the new infection rate is very low, employment situation is much better, infrastructure boom is on the horizon, etc. I think all the good news has already been priced into the market and more better news will add more to the inflation, higher interest rate fears. I think that stocks won't be performing to the tune of good news in the remaining months of this year. The stocks would trade sideways if not downward or we will have periodic quick pullbacks now onwards in my view.The long term yields have been rising and I expect yields to move higher in the coming months. If the economy can put together more months like this March in terms of jobs report, I think Fed will be left with no excuse to maintain its current stance. Moreover I think Philip's curve is not dead, and chances of higher inflation are much higher given the amount of liquidity in the system, fiscal measures and the pent up demand.

Week Ending March 26th, 2021The major stock indices were mixed last week . The investors seem to be thinking about re-opening expectations and inflation concerns. The seasonally adjusted initial jobless claims fell to 684,000 in the week ending on March 20. A decrease of 97,000 from the revised level of the week ended on March 13, while existing home sales and new home sales fell 6.6% and 18.2 % respectively for the month of February.On last Thursday, President Biden announced his aim of vaccinating 200 million Americans in his first 100 days instead of 100 million as previously targeted by him. The university of Michigan's sentiment index rose to final reading of 84.9 this month as reported last Friday from February's reading of 76.8. This recent rise has the brought the index to its highest level since March 2020.The US employment situation for March is scheduled to be released on April 2nd, this coming Friday. And the investors will have couple of days to react to this new information as markets are closed on Friday in observance of Good Friday. While the economic situation expectations continue to brighten, I think investors should wait for the right opportunities as stocks are expected to have periodic pullbacks in my view due to rising inflation, interest rate worries. Moreover Biden administration is mulling over huge infrastructure plans, which are expected to be unveiled as early as this coming week. The infrastructure plans would further put upward pressure on already rising long term yields.

Week Ending March 19th, 2021The major stock indices continued to march higher earlier in the week but later lost ground as bond yields touched highest levels in over a year. The most watched 10 Year Treasury yield touched 1.75% in the week and was at 1.73% as of Friday's close.Fed is trying hard to walk a tight rope, it changed its projections of inflation, unemployment and GDP by a lot in the meeting last week. Mr. Powell tried to calm investors with ultra-dovish remarks after the meeting ended. Fed moved its projection of headline PCE inflation up from 1.8% to 2.4 % while raising core PCE projection to 2.2% for the current year.I think what will happen if the long term yields continue to rise amid Fed's assurances, and it may cause the Fed to change its monetary stance earlier than being projected. The fed is forecasting inflation bump as a temporary one but who knows if it happens to be otherwise in the backdrop of highly liquid conditions and expected sharp rise in GDP growth. Although we know inflation barely touched Fed's target in 2019 after years of ultra-accommodative policy.US - China meeting ended with no progress on any of the issues between the two. I personally feel that China seems to be unstoppable, and poses a threat to the world order in the years to come.The seasonally adjusted initial jobless claims rose to 770,000 in the week ended on March 13th; an increase of 45,000 from previous week's revised level. And the total industrial production decreased by 2.2% from January's revised level.

Week Ending March 12th, 2021The stock market touched new highs last week as economic outlook prospects continue to brighten. The $1.9 trillion stimulus bill became a reality last week. Roughly $400 Billion will be sent to consumers in the form of checks up to $1400 in the coming week. This $400 billion won't be spent by people immediately but over the course of the time in near future and this will definitely boost the economic expansion temporarily.The stocks breathed a sigh of relief after long term yields backed off a little for the first few days of last week. Moreover inflation data released last week showed no signs of any upside surprise. On last Wednesday labor department reported that CPI index, less food and energy, rose only by 0.1% in February. The core producer price index moved up 0.2% in February as per Friday's release by the Bureau of Labor Statistics.The seasonally adjusted initial jobless claims were 712,000 in the week ended on March 6th, a decrease of 42,000 from the previous week's revised level. Almost everything is priced in it seems, the only way forward which will strengthen the legs of this economic expansion will be jobs & jobs growth.

Week Ending March 5th, 2021Major stock indices recovered on Last Friday, Nasdaq composite ended the week down 2% on weekly basis. The rising long term yields continued to haunt the tech stocks as the rising yields affect the present value of the future growth associated with the tech sector. In other words tech stocks can also be stated as "long duration assets" as future growth expectations and long term earning power drive the interest of the investors. And whenever the rates rise, the long duration assets decline in value to compensate for the rising interest rates.I think stock market will have periodic pull backs going forward as the investors try to process the signals more accurately coming from the Fed. The 10 year Treasury yield climbed to 1.54% after Mr. Powell spoke last week. Investors are thinking in their minds that if the 10 Year Treasury yield rises to let's say 1.75%-2% within coming few weeks, it will change the tone of the Fed's communication. Although Powell told us last week that fed is not monitoring only one data set. But he said if the rising yields cause financial conditions to tighten, and if things change materially; Fed will make use of tools in appropriate way.Senate has passed the $1.9 Trillion stimulus bill yesterday, and the House will vote on the amended version by Tuesday. The headline number associated with the new bill passed by the Senate will put more upward pressure on the yields in my view.The nonfarm payroll employment rose by 379,000 in February as reported last Friday. The most of the job gains occurred in leisure and hospitality sector in February. The initial jobless claims were 745,000 in the week ended on February 27th on seasonally adjusted basis .

Week Ending February 26th, 2021The major stock indices pulled back last week after investors started taking rising long term yields more seriously. Fed Chair Jerome Powell tried to calm the investors' nerves last week by emphasizing that inflation remains soft and is not being expected to rise sharply and show persistent increases later this year. But the markets continued to fall again after last Wednesday. I think one needs to understand that long term yields are rising as the prospects of economic growth has increased and PPI data released last week showed the signs of inflation.I think investors need to understand that yield curve is steepening not flattening. Flattening of the yield curve is expected after multi-year expansion when rise in inflation is expected to change monetary policy's stance, which in turn cause the short end of the curve to rise. This time inflations needs to remain above 2% for quite some time before Fed considers any change in policy. The sudden or short lived bump in inflation won't be enough for the Fed to reconsider its plans.I personally believe the persistent rise in inflation is dependent more on the labor strength. We are nowhere near the levels seen before pandemic in term of the unemployment numbers. The accommodative monetary policy and the fiscal stimulus plans continue to support the stocks in general.Fears of rise in inflation were also fed by the sudden fall in initial jobless claims and rise in personal Income data released last week. Weekly Jobless claims hit 730,000 on seasonally adjusted basis, the lowest since last 3 months as reported last week. The estimates of Personal Income, Disposable Personal Income rose by 10.0% and 11.4% in January respectively as reported last Friday.I think rising yield will be a headwind for high growth tech stocks in the short term but there are subsets of the tech stocks which will benefit more from the economic growth. For the short term, Markets need a correction as valuations are very stretched and most of the good news has already been priced in the market.

Week Ending February 19th, 2021SP500 & Dow were almost flat last week while technology heavy Nasdaq ended the week in red. One of the major highlights of the week was the congressional hearing of the parties involved in the GameStop saga. I think it was a good effort by the congressional committee but I think it failed to address the core issues like full disclosures to public at large and protocols being followed by the trading apps before granting permission to trade derivatives and other complex instruments.10 year Treasury yield rose to 1.34% which is catching lot of attention due to reasons behind the upward move since start of the year and the implications of the rise in yields for the market overall. I do believe the rising yields and the inflation fear will put breaks on the high flying stock market.Minutes of the Fed meeting last month were released last Wednesday which showed that the policy makers viewed economic conditions as being far from the fed's long term goals. On coming Tuesday Mr. Powell is set to testify before congressional panel.It was reported last week that initial jobless claims rose unexpectedly to 861000 on seasonally adjusted basis in the week ending on February 13. Also the producer price index increased 1.3% in January, which is highest since 2009 as reported by the bureau of labor statistics last week. Advanced estimates of retail sales were $568.2 billion in January an increase of 5.3% on monthly basis as reported by the census bureau last week. Rising retail sales and producer price index add to the inflation fears.I think it's high time for investors to reconsider their future expectations from the market in general. And I advise people not to follow the online forums and buy stocks based on rumors.

Week Ending February 12th, 2021The stocks continued to rise last week supported by the fiscal stimulus expectations amid Trump's impeachment trial. On Saturday Senate has acquitted Trump in the impeachment trial, which has highly been anticipated by the investors. The core CPI data for January remains unchanged as reported last week. The initial unemployment claims fell to 793,000 on seasonally adjusted basis, in the week ending on February 6th. While University of Michigan's sentiment index fell to the lowest reading of 76.2 in the early February since hitting 74.1 in August 2020 because the consumers expectations index fell to 69.8 in February from January's reading of 74.0. Crude oil continued to rise and hit $59.82 on Friday amid ongoing supply cuts.The stocks are trading at all-time highs, and I think new catalysts are needed to push them higher from these levels because all the good news has already been priced in the market. Stocks have been the only option for investors so far. Although breakeven inflation rate has been on the rise, 5 and 10 year Treasury breakeven hit 2.35% and 2.21% respectively on Friday, I think investors' expectations about the future expectations of inflations are little out of proportion as I think inflation is more a function of labor market than the size of the stimulus or the pent-up demand. Moreover, I think coronavirus is going to stay with us in some form for couple more years even though we end up vaccinating the entire population.

Week Ending February 5th, 2021Contrary to my expectations, the stocks came back up last week. I thought the GameStop/Redditt saga will linger on for more days but at present it appears that the worries have disappeared. And once again fundamentals have prevailed and pumped up securities prices got corrected to levels closer to the intrinsic values. Maybe the markets need a bigger catalyst to clear the frothiness. Although the fiscal stimulus expectations, distribution of the vaccine and emergence of new strains continue to blur the path forward.On economic front the January 2021 jobs report disappointed as US economy only added 49,000 jobs. Although initial claims, a more timely measure of the labor market declined to 779,000, on seasonally adjusted basis in the week ended on January 30.I continue to stick to the bearish expectations until labor market improves by a lot as household spending is dependent on labor market strength, and US economy is all about consumer spending. I am aware that corporate results have been pretty good so far and are expected to grow in the future and we are going to stay in the ultra-low interest rate environment.I advise investors to stay diversified and not to chase speculative manias. Fundamental analysis and basics of economics always determine the assets prices.

Week Ending January 29th, 2021What a volatile stock market it was last week, the new crowd headed by the self-claimed top notch experts on Reddit and other social media sites started a war against the established market participants. I feel neither the leaders of such online forums nor the hedge funds will be at a loss when the dust settles, the average investor will end up holding pumped up stocks.Fundamental analysis will never lose against the so called crowd of online communities. I remember a 1929 story when a shoe shiner gave stock tips to Joe Kennedy and Joe being a wise investor decided to get out of the stock market. The present situation is not entirely similar to 1929 circumstances, but investors should be vigilant.The compliance departments of broker dealers should keep track of the symbols which are being pumped up by the social media forums and try to stop or restrict trading in those securities where made up stories about certain stocks do not correlate with underlying fundamentals. Otherwise the similar kind of pump and dump schemes orchestrated by the online chat rooms would be every day's news. I know it's not accurate to call this pump and dump until we have proof of false information being spread by a few with intention to defraud, as everybody knows it’s a speculation for sure at the moment. I think moderators of such online communities should be regulated persons.Jerome Powell reinforced his message that economic outlook remains uncertain after 2 days meeting last week. He also expressed that Fed does not have any intention to taper its purchases at present.As expressed by me last week, I think all the available good news has already been priced in. I am hoping that this meltdown continues next week.

Week Ending January 22nd, 2021It was another good week for equities, major indices hit new highs on Thursday before pulling back on last Friday, while Treasury yields remained steady over the week. Biden became the 46th President of United States, his inauguration took place on Wednesday without any violence or major protest. I think markets are pricing in lesser chance of tax hike this year it seems, as Biden is looking more interested in reviving the economy. He is pushing for $1.9 Trillion stimulus plan which is currently getting a lot of resistance from Senate Republicans who are concerned about size of the stimulus plan and long term government deficit levels.Biden reversed many of the last administration's decisions including Trump's decision to leave W.H.O and Paris Climate deal. Biden repeated his goal of vaccinating 1 million persons a day in the first 100 days of his presidency which calmed investors' nerves who look concerned about slow distribution of vaccines. Daily new cases and hospitalizations moderated a little bit last week but danger of much more infectious strains looms.Seasonally adjusted initial claims remained stubbornly high at 900,000 in the week ending on Jan 16. National Association of realtors reported last Friday that Existing home sales rose in December and in 2020 as a whole. Existing home sales in 2020 rose by 5.9% from 2019 due to low interest rates and the pandemic induced buying although the listings remain at historic lows.I think all the good news has already been discounted in the market. The companies' earnings, size and frequency of stimulus bills this year can only provide positive surprises.

Week Ending January 15th, 2021Stocks ended the week lower as investors are trying to assess uncertainties related to economic recovery in 2021 , possible path of the coronavirus and new coronavirus strain in particular and future lockdowns. Also the distribution of the vaccines is falling well short of the expectations, which is effecting the investors' sentiment.President Elect has announced a $1.9trillion fiscal plan to counter the effects of virus. I feel that effectiveness of stimulus is dependent not on the dollar value but on how these funds are spent .The seasonally adjusted initial claims rose by 181,000 to 965,000 in the week ending on January 9 as reported last week. Initial claims act as proxy for layoffs so it is evident that we are very far from pre-pandemic employment level.As reported last week the core CPI increased only by 0.1% in December 2020 and the annual core CPI remains at 1.6 % although Fed eyes PCE as the correct inflation measure. On the other hand the 10 year treasury yield and 10 year breakeven inflation rate, have been rising due to rising commodity prices and the weak dollar and expectations of uptick in inflation due to fiscal stimulus.I think expectations of rise in inflation will be realized only if labor market recovers at a faster pace in 2021, speedy vaccination or development of herd immunity and people spending the stimulus checks to increase demand of goods.Otherwise If the long term yields keep on rising at a faster pace and the fed starts to pause or taper the purchases later this year then I think the equity prices will come under greater pressure apart from quick correction which is already due as I think valuations have run far ahead of the underlying fundamentals .

Week Ending January 8th, 2021The stock indices continued to march higher in the first week of the year. The stocks tumbled earlier in the week but resumed the upward journey on Wednesday. Democrats won the run-off elections in Georgia on Wednesday. Saudi Arabia shocked the energy market with new supply cuts. The US Capitol was stormed by rioters on Wednesday and the situation was taken under control by the National Guard later that day.The stocks have been continuing to shrug off all the negative news. But I feel the negative sentiment is building up slowly. The non-farm payroll report was another shock last week as it was reported that 140,000 jobs were lost in December 2020. But the unemployment rate remains at 6.7%, While the seasonally adjusted initial claims fell by 3000 to 787000 in the week ended on January 2nd. I think what will happen if the new day traders learn the art of short selling as it will prove to be more fun for these novice traders. These new born traders are the key I think to the next meltdown. They have enjoyed the uphill journey so far, why won't they participate in the downhill ride. It's just a matter of transmission of this idea to a large base of these traders.Fundamentally market seems to have priced in smooth economic recovery this year. But very smooth economic recovery seems unlikely to me as danger of new waves and new strains continue to lurk around us. Now Democrats have clear majority in both the houses, let's see how many times one gets stimulus checks this year.

Week Ending January 1st, 2020What a wild run we had in the stock market in 2020. Stocks took a deep dive in first quarter last year and then climbed back up again and surpassed the previous highs seen before pandemic. While the unemployment rate has improved a lot but the economy is still recovering from the shock and it’s after currents. Technology sector took the lead and pulled the indices back up.Let's talk about the future and 2021 in particular, the economy is dependent on stimulus and the ultra-accommodative monetary policy, the unemployment rate is far better but nowhere near the pre pandemic level, Trade tariffs remain in place, China has become unstoppable it seems. We are still fighting the virus although there are vaccines available. Virus is mutating and producing new more communicable strains. Core PCE Inflation is hovering around 1.4%, but I think we can expect uptick in inflation in the latter half of 2021, due to so much liquidity in the market. The uptick in inflation can cause pause in Fed bond buying later this year.Stocks are trading at all-time highs and I feel they have run ahead of the fundamentals by large margin and too quickly due to flood of liquidity, thanks to Fed. The stocks are due for correction in the short term, as stocks need to catch up with the reality.I am also aware that there is no place except stocks for the investors. And this accommodative monetary policy is going to be in place for at least 1-2 years and people will be receiving more stimulus checks in near future. Recovering unemployment rate will also help the consumer spending.I advise investors to follow strategies which help to protect as well as capture most of the upside in the stock market in 2021.

Week Ending December 18th, 2020The stock market is only focused on the new stimulus bill, it appears. Whenever there is any positive development on stimulus talks, stocks move up. I feel that even if Congress passes the new proposed bill, it won't be enough as economy needs more relief packages like this in near future. It was reported last Thursday that the unemployment claims remain high despite all the positive news about the vaccine. The seasonally adjusted unemployment claims reached 885,000 in the week ending on December 12th.Federal Reserve's total balance sheet has expanded to $7.36 Trillion as of December 16, from almost $4 Trillion approximately in February this year. The pace of the bond buying by the Fed has been phenomenal. Last week FOMC assured the investors that it will continue to buy the Treasury and Agency Mortgage backed securities at current pace .I think this unprecedented amount of liquidity has resulted in inflated equities prices.I don’t think it’s a good environment to short the stocks as the momentum behind the stocks' rally can last for many weeks ahead. But it seems prudent to wait for any correction which is highly likely in coming first 3 months 2021. Merry Christmas & Happy Holidays!

Week Ending December 11th, 2020Equities ended last week lower as recovery in employment growth appears to be stalling and as talks over another round of stimulus continue to drag. As almost all analysts are saying that we are entering a new bull market , I don’t think the bull markets start with stimulus bills and slow employment growth. The magnitude of the animal spirits can be assessed by looking at the new IPOs’ wonderful openings. Airbnb and Doordash shares opened sharply higher once trading began last week. I am confident about the US economy but I think in the near term stocks are due for a correction.Last week Labor Department reported that initial jobless claims rose to 853,000 in the week ending December 5th. But the University of Michigan's gauge of consumer confidence rose to 81.4 in the two weeks ending on December 9, from 76.9 in November.Factors like accommodative monetary policy mixed with fiscal stimulus, anticipation of higher corporate profits supported by cost control measures, very low inflation and distribution of the vaccine, all favor equities. Moreover stocks are the only place left to get decent return in this environment. But I think when everyone is greedy, the sophisticated investors should remain vigilant.

Week Ending December 4th, 2020Stocks went further up last week. Energy stocks performed well after 'OPEC plus's meeting ended with an agreement to ease output cuts more gradually than planned before. On last Wednesday, UK approved the use of coronavirus vaccine. Scientists have also started to find the answers for very less number of new cases in Asia while new cases have been soaring at a great pace in Europe and North America.Rising hopes of new stimulus bill emerged last week as on last Tuesday as a bipartisan group of senators proposed a $908 billion relief package. Mnuchin also asked the legislators to use the unused $455 billion of CARES act. He had asked the Fed to return these funds to Treasury previously. On Friday it was reported that only 245,000 non-farm jobs were added in the month of November. This number signals the slowing pace of economic recovery . The unemployment rate went down to 6.7% due to the falling participation rate.I reiterate that investors should cut down their equity exposure going into next year. As stocks are at historic highs and look very costly on absolute basis. Many analysts are comparing this current market scenario with the mid-late 2009 period when the last bull market started. But I think it is not a good idea to compare different economic periods, as now we are already at the lower bound and Fed has already exhausted almost its entire toolkit. Moreover the economy depends on the stimulus which Jerome Powell regularly is asking for.Sometimes it feels like US Economy is undergoing Japanification process . And it seems possible that US Fed will be buying stocks in near future like it has started buying junk bonds.

Week Ending November 27th, 2020Most of the benchmark indices reached new highs last week. Dow Jones industrial Average got the most attention as it reached psychological level of 30000 last week. I think investors were confident due to the growing vaccine optimism and diminishing political uncertainty. It seems almost certain that Biden will take over the power in January and it will be a smooth transition.Moreover news about possible nomination of Janet Yellen as new Treasury Secretary was very good news for the market participants as we all know about the dovish nature of the Ex Fed chair. I think Janet Yellen is a good choice as she can work closely with the Federal Reserve.Last week was a short week due to Thanksgiving but the volumes remained high. The jobless claims jumped higher to 778000 in the week ending November 21. Also the November reading of University of Michigan's sentiment gauge was revised lower to 76.9, the lowest number since August this year.Despite warnings, millions of Americans took to roads and skies to travel for Thanksgiving and the daily new cases continue to rise and hit new records.

Week Ending November 20thMajor stock indices ended mixed last week . The optimistic and highly awaited news about vaccines was overshadowed by the worsening pandemic crises and lack of any progress on the fiscal stimulus. Also the weekly jobless claims increased last week to 742000 more than expected by the economists .With the new lockdowns, the jobless claims are expected to rise further. Volatility in the stocks is also expected to rise in coming weeks as Trump is not ready to concede. I think one should remain vigilant about the possibility of correction happening in the stocks in mid-December to end of January period.I know things are much clear after the election and third quarter results have been better than expected overall . And there is lot of cash available on the sidelines to be deployed. But the labor market is not close to where it was before pandemic. Economy needs and depends on fiscal stimulus and interest rates are at the lower bound. Path of the pandemic is not clear and lot of questions about the vaccines need to be answered. Long term effects of pandemic on the economy and labor force are not clear. Also stocks look very costly by looking at absolute valuations.Stock market can rise further before it corrects early next year. And I don’t think the traders would take extra risk in the remaining days of the year. I also think Biden is not going to reverse tariffs imposed on China. Biden is going to put pressure on China by taking international allies along. So tariff wars will continue in near future.Although I am worried about the insane valuations of the tech/growth sector but I am also not in favor of jumping 'all in' into the cyclical stocks. I think economy is not in a state it was before pandemic and one needs to wait till early next year to consider cyclicals.

Week Ending November 13th, 2020All of the major benchmarks went sharply higher on Monday but surrendered much of the gains at mid week before rebounding on Friday. The sharp move up was fueled by Biden's win declared by media and Pfizer vaccine results early last week. I think more than 90% efficacy rate of Pfizer vaccine, as found in the preliminary data shared by Pfizer, was turning point for the market sentiment.Due to vaccine news, investors sold tech stocks which benefitted from stay at home scenario in particular and lifted cyclical stocks. Bank shares also benefitted due to rising long term yields. On Thursday investors became cautious due to rising new cases and possible lockdowns in the coming weeks. I think path of the new wave is going to test investor's nerves again.I think vaccine is very good news but investors should not forget about at least 5-6 months delay before vaccine reaches the masses. Moreover it has to be seen how long vaccine is going to help one stay safe.Initial jobless claims fell further last week to 709,000. This signals the continued healing of the labor market which is one of the main drivers of sustained economic growth. The rising new cases may decrease the hiring in coming winter months but overall we are on the right track. Consumer price data released last week showed that core inflation dropped back a bit last month with price rising at subdued 1.6%. Slower demand for services was main reason behind modest reading.I urge investors not to believe the possible outperformance of value stocks over growth stocks based on one week's trading. Let's wait and see if this trend continues.

Week Ending November 6th, 2020It was a good week for stocks. Stocks kept on moving higher despite political uncertainty. I think stocks were up as investors thought last week that even if Biden wins, GOP is going to retain control of the Senate. Last week investors thought Biden administration won’t be able to reverse the tax cuts made by Trump. Moreover it seemed difficult for the Biden administration to keep most of the extreme left leaning promises made to public. Moreover the investors felt that there won’t be strict regulation for businesses and big banks as they thought GOP will retain control of the senate.Biden claimed victory on Saturday although Mr. Trump has not conceded his defeat yet and threatened to file more law suits this Monday. I think these lawsuits represents noise and it is nearly impossible for Trump campaign to prove any wrongdoings in the election. But I think this investigation will go on for quite some time. Some of the senior members of the Republican Party are trying to endorse Trump's efforts for recount and find if there was any wrongdoing. I think it’s just a ploy of the Republican Party to please Trump’s base.I am more concerned about the stimulus bill which is highly needed to jumpstart the economy. I think the path for stimulus bill is not straight but I feel some kind of bill will be ready before the year end. As anticipated federal reserve did not change any plan after its meeting last week. The data released last week was positive for the economy, the unemployment level reached 6.9% as economy added 638,000 jobs in October. Initial jobless claims fell by 7000 in the last week of October to reach 751,000. The path of the pandemic is also on top of investors minds. The daily new cases have been on the rise. It has to be seen if there is going to be any lockdown in US states .On the trade front I don’t think China is going to change its stance after Biden becoming the president. Neither US is going to change its demands under Biden. The uncertainty around trade negotiations is certainly going to decrease under Biden. I think Biden administration would be much tougher on human rights violations in China. Prince of Saudi Arabia will have to find new friends in the Biden administration to continue to pursue his dreams. It has to be seen what happens to US policy towards Middle East and war in Yemen.I urge investors not to let the guard down yet and be vigilant as we are still in the uncharted territory.

Week Ending October 30th, 2020Last week was very volatile, as number of new coronavirus cases hit new record highs, and probability of any fiscal stimulus happening before election went to near zero. SP500 fell almost 6% last week and volatility jumped by 40% approximately. Technology sector also went down although it acted as the defensive sector since virus outbreak. I think the election outcome worries are at the core of all the volatility and path of coronavirus is the shell.Markets tumbled last week as investors were hoping for Less probability of second wave happening.Second wave was supposed to be less lethal by market. Perception of uncontested election.And these pre conceptions were re calibrated last week which caused the meltdown. States are running out of funds as the revenues have taken the hit due to covid and federal fiscal stimulus is desperately needed. Chances of big stimulus bills next year depend upon the probability of blue wave happening. I don’t think we should hope for immediate stimulus bill after the election if Trump loses the election although another round of negotiations will start after election day.On the positive side US GDP increased at annual rate of 33.1% in the third quarter according to advanced estimate by Bureau of Economic Analysis released last Thursday. New jobless claims fell further last week to 751,000.The economy seems to be recovering from the shock of the first wave at a steady pace. I think we need not to worry about the negative effects of second wave as we are better prepared now as a nation and some of the medications and procedures seem to work.Let's hope for an uncontested election otherwise uncertainty will roil the markets for next 2 months till the inauguration day. Whoever wins the election, we should stay united. God Bless America!

Week Ending October 23rd, 2020The major indices ended mixed last week as investors were waiting for news about stimulus bill negotiations and earnings. I feel that two parties are still far apart from each other on the stimulus bill. Last week was also marked by antitrust lawsuit filed by the US government against Google, Facebook and Apple. I think this is not a comprehensive lawsuit as it deals with Google’s consumer side of the business only and DOJ needs to prove in the court that Google actually violates antitrust law; which is lengthy and difficult process. Moreover, it takes only few steps to change search engine in phones nowadays. The data released last week was better than expected as the new jobless claims were 787,000. Existing home sales were also better than expected.Looking at 10-year treasury rate, it appears that market is signaling Biden win as many believe that he will bring bigger stimulus bills and a massive infrastructure bill which will boost GDP. But I believe that even if Trump wins, fiscal push will be far bigger. Biden is a far better seasoned politician than Trump and I don't think we should take his promises so seriously. Moreover, fate of all promises also depends on the composition of the next congress. I feel that markets are not reflecting the reversal of the all tax cuts even if we believe that market is signaling Biden win.Markets have performed well under both parties and although elections effect its course for the very short run every 4 years. But in the long run, market’s direction is determined by fundamentals only. World is recovering from shock of this pandemic, so eventually all economies will recover helped by accommodative policies of central banks and fiscal measures taken by governments. Many strategists are saying not to worry this time as they are not expecting huge downward moves around election. The fear index is also not showing any panic signs at the moment. But history shows unexpected things occur mostly when they are expected the least.I have been advising investors not to panic, but be prepared in case we have a contested election or any other scenario other than binary outcome.

Week Ending October 16th, 2020The major stock indices were flat. Last week’s economic data releases were mixed. Core retail sales rose 1.4% in September, after 0.3% drop in August. Weekly jobless claims rose to 898,000 which is a little disappointing.It has to be seen whether Trump accepts his defeat after counting the mail in ballots or he declares his win on November 3rd after counting voting in person votes only. It is clear that Trump’s fan base would be voting in person in much higher numbers than Biden’s supporters. So it's possible that Trump would have a big lead over Biden by the end of November 3rd counting of votes.What if he decides to stop counting of votes after 3rd of November, it would cause a legal dilemma. What if Biden wins by a thin margin of let’s say 1000 votes in key states, Trump would most probably going to cast doubt on the legality of such few thousand votes.I think as an investor, I am really worried about what happens between November 3rd and Jan 6th (when electoral votes are counted). Moreover there are pretty good chances of civil unrest which may become violent irrespective of whether Biden or Trump wins.Although the above mentioned scenarios are hypothetical ones, but I think one should be prepared mentally before any of the above becomes a reality. One critical factor which determines the probability of any confusion happening is how many Americans cast votes early enough. I call upon my fellow Americans to cast their vote as early as they can. As Tom Stoppard said “It’s not the voting that’s democracy; it’s the counting”. I am confident that America will come out more stronger after this election.China’s ambitious expansion plans need to be understood by the developed world. Moreover the human rights violations put China as a barbarian autocratic nation on the world map. I hope democratic governments are taking China seriously, I think China is going to be the biggest threat to the world order and commerce in next decade. The ultimate goal of the world leaders should be to set up democratically elected government in China in the next decade.

Week Ending October 9th, 2020It was another good week for stocks. Stocks kept on moving higher on hopes of new stimulus bill, hopes of early approval of some antibody therapies. Although stocks pulled back later on Tuesday after President Trump’s tweet about calling an end to negotiations. But Mr. Trump reversed his stance later in the evening on Tuesday resulting in continuation of stocks’ rally on Wednesday. The gap between two parties’ proposed stimulus bills has narrowed very much to half a trillion approximately by the end of Friday. I think markets are factoring in greater probability of Biden as next President and may be hoping for even bigger stimulus bills in the near future, which is highly expected. Moreover investors are thinking that democrats will support the Fed's accommodative policy more. Over all the economic recovery is slowing down and one should not base his/her guess solely on the bigger stimulus package hopes and Democratic win. Labor Participation rate has been dropping since many many years. Although it has spiked a tiny bit from April 2020 low. There are many factors responsible for this but for the US economy to thrive again we have to solve structural problem associated with labor. I think we need to encourage the sidelined workers to join work force again by starting apprenticeship programs which will deliver new skills to workforce whose jobs are thought to be eliminated by technology. The government should work with corporations to draft such programs. Monetary policy won’t be enough to stimulate economy until it is substantiated by big fiscal push. Fiscal push holds the key now, which depends upon next congress and next President. Fiscal policy holds the answers for future inflation to a great extent. I ask investors to arm themselves with tools to jump over the near term hurdles such as expected volatility due to election and mid term hurdles such as change in tax structure if democrats win and next administration’s view on big tech’s monopolistic practices. Although I am sure Democrats won’t do anything big on tech if elected to the highest office. I want the investors not to forget chances of Trump being re-elected, although polls show Biden as the leading candidate. Polls were not expecting Trump’s victory in 2016. The re election of Trump would be a surprise to market positioning. Please take note of this and be prepared. If Trump is elected again, I feel he will be more strict on China and globalization. Moreover infrastructure revamp would be his top agenda which he has missed in the first term. I think he is the only leader to challenge world order and international institutions.

Week Ending October 2nd, 2020Mr. Trump’s positive test result added more to the uncertainty on last Friday. I think investors need not to panic and should stay invested. They need not to change their allocations in their investment portfolios right now. I have been warning about rise in volatility around election for the last few weeks based on historical pattern. Although volatility will tend to come down after 1-2 weeks of the election. Therefore a tactical move to buy protective put option would have been great, I think its still time to buy one now. Moreover I want to add that the bonds won’t be enough to safeguard against any meltdown which may happen after elections as many are hoping for.Value stocks have been underperforming for the last many years now, as most of gains in the widely followed index are due to a small group of big tech stocks. I am not saying that these tech companies are not good, but their valuations looks super stretched. Although I don't recommend investors to get rid of these big tech names, as these companies are mature enough, diversified enough and very cash rich.I just want people to be vigilant enough about any systemic correction and arm themselves with protective gear. The protection may seem to be costly to many, but there is no alternative as no one knows how long this market rally will continue. I only mean to say that core of any equity portfolio should be strong and consists good value stocks. The value stocks are not immune to systemic shock, but historically they will not go down as much tech stocks would.The value investors are dreaming about return of an era of value stocks, but I think they should understand the changing demographics, importance of tech in daily lives of millennials, cash rich strong balance sheets of big tech companies before making their case based on historical data.Unemployment level went to 7.9% after last Friday’s jobs report as participation rate went further down. Economy continues to recover but slowly even though new cases of coronavirus are being reported from NY and other states.As of Sunday evening, Trump is feeling well, and hopefully will be out of the hospital early this week. Although there are lot many questions remain to be answered about his health.